Etsy introduced formal "Creativity Standards" in July 2024, requiring all sellers to label their listings by how much human involvement went into creating the item. Sellers who use AI tools to generate artwork or designs must disclose this in their listings. Items made entirely by AI prompts — with no additional human creative input — are also permitted under the "Designed by a seller" category, but AI prompt bundles (selling the prompts themselves) are banned.

Etsy's policy establishes four item categories: "Made by a seller" (fully handmade or designed from scratch), "Designed by a seller" (covers AI-generated art created using the seller's original prompts), "Sourced by a seller," and "Handpicked by a seller." A June 2025 update tightened the "Made by" standard to require items be produced using the seller's own original design, not third-party templates. In 2024, Etsy removed 22% more listings under these Creativity Standards and suspended 1.5x more sellers than in the prior year, while simultaneously improving automated detection precision by 70% — reducing false positives. Etsy states it is monitoring evolving debates around AI training on copyrighted works and will periodically reevaluate its policies. The policy has generated ongoing debate within Etsy's seller community, with some human makers arguing that AI-generated listings undermine the handmade marketplace's core identity.